If One Company Owns More Than 50% of the Common

question 29

Multiple Choice

If one company owns more than 50% of the common shares of another company

• A) the cost method should be used to account for the investment.
• B) a partnership exists.
• C) a parent-subsidiary relationship exists.
• D) the company whose shares are owned must be liquidated.

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Definitions:

Cash Basis

A method of accounting that records transactions when cash is either received or paid.

Selling and Administrative Expense

Expenses related to the selling of products and the management of the business, not directly tied to production, including marketing, salaries of executives, and office supplies.

Adjusted

Modified or changed for a more accurate comparison or calculation, often in financial contexts.

Financing Activities

Transactions involving changes in equity and borrowings of the company, reported in the cash flow statement.